Bank of England Governor Andrew Bailey said something very important on the UK’s economic prospects recently, but his words need translating into plain English. That’s because Bank of England governors tend to be calm and subtle, and the first rule of banking is not to unnerve money markets or irritate political leaders.
But before the translation, here’s a famous story that, as Mr Bailey spoke, kept echoing in my head.
In 1837, the Danish writer Hans Christian Andersen wrote a wonderful fairy tale. In The Emperor’s New Clothes, a vain emperor loves dressing up. He is persuaded by some dishonest salesmen to buy magnificent “new clothes” that are supposedly beautiful but also invisible to incompetent or stupid people.
The emperor – not wishing to appear incompetent or stupid – takes the bait. He buys invisible new clothes. None of the emperor’s subjects are brave enough to point out that these new clothes do not exist, until a small boy makes an obvious observation. The emperor is naked. It’s a con trick.
Mr Bailey’s speech in London’s historic Mansion House did something similar when he mentioned the often-forbidden subject of Brexit. Like the small boy in Andersen’s fairy tale, he pointed out something we can all see but few politicians or officials dare speak openly about.
The Governor’s former role was chief executive of the Financial Conduct Authority, the UK’s financial regulatory body. He holds an economics-related PhD from the University of Cambridge. But even with those superb qualifications, pointing to the obvious damage that Brexit has done to the UK’s economy remains so vexatious that few officials or politicians say it out loud.
Mr Bailey began carefully saying that he had “no position on Brexit per se”, but that “I do have to point out the consequences”. And those consequences include significant damage to the UK economy and the nation’s prosperity. “The changing trading relationship with the EU has weighed on the level of potential supply,” he said, speaking in a subtle kind of code, although the message was clear.
He called himself “an old-fashioned free trader at heart” but Brexit had “weighed” on the UK’s trade in goods, and that “underlines why we must be alert to and welcome opportunities to rebuild relations while respecting the decision of the British people”.
Yes, it’s code. But yes, it’s also clear. Mr Bailey may have “no position on Brexit per se”, but he clearly has a position on the damage it has caused. Privately many politicians and officials are well aware of all this. His speech gives them permission to begin to talk more openly.
The British people are clearly ahead of the politicians in noticing Brexit is self-harm. The global number-crunching platform Statista reports that “as of May 2024, 55 per cent of people in Great Britain thought that it was wrong to leave the European Union, compared with 31 per cent who thought it was the right decision”.
Mr Bailey’s very measured comments, therefore, open the door to re-examining and correcting failure. The British-based German journalist Annette Dittert noticed that the change had even touched the BBC’s early morning flagship news programme Today, which for several years often seemed to avoid connecting economic failures to Brexit itself: “It is November 2024,” Dittert tweeted, “and I am listening for the first time ever to the BBC’s Today talking about the damage Brexit has done to Britain. I mean it has just been eight years … ”
As a result of Brexit, Aston University Business School in Birmingham estimates that the value of EU goods exported to the UK was 27 per cent lower, and imported goods 32 per cent lower, compared with what the economic picture would have looked like if Brexit had not happened.
In January 2021, when the UK left the single market, it had a “profound and ongoing” impact on UK-EU trade. The university calculated that 1,645 fewer types of British products were sold to EU countries.
Meanwhile, the prospect of further disruption caused by US president-elect Donald Trump’s protectionist agenda means that the UK’s National Institute of Economic and Social Research predicts the Trump plan for a 10 per cent tariff on all imports could cut the UK’s growth rate next year to just 0.4 per cent. As Mr Bailey put it, again very politely, without mentioning Mr Trump directly: “The picture is now clouded by the impact of geopolitical shocks and the broader fragmentation of the world economy.”
British officialdom, including Prime Minister Keir Starmer, have avoided stating the obvious. Mr Bailey has done so, very subtly, although anyone listening gets the message. He and the politicians do not want to appear to undermine the 2016 Brexit referendum, which narrowly voted to leave the EU. But the political winds are changing. The Brexit reality, including long queues for British holidaymakers this summer at European airports, is now being talked about and complained about.
Mr Bailey has proved that it’s neither undemocratic nor stupid to declare that the emperor has no new clothes. It would be undemocratic and stupid to fail to do so. The public mood has changed. Politicians have begun to notice, but they’re not leading the debate. They are following it.
